Category: Books
Joe the Plumber and his favorite books
Joe reads economics:
The Theory of Money and Credit (Ludwig von Mises): "It brought
monetary theory into the mainstream of economic analysis. It is
important reading for these troubled times."
My theory is that someone in Ron Paul’s camp told him to say that. Here is the full list of his favorite books. Here is my source. Here is an on-line version of TOMAC. Scrolling through it a bit, it is more readable than my recollection and it remains one of the better 20th century books on monetary theory.
Changes in money wages
And what Keynes had to say then is as valid as ever: under
depression-type conditions, with short-term interest rates near zero,
there’s no reason to think that lower wages for all workers – as opposed to lower wages for a particular group of workers – would lead to higher employment.
Suppose that wages across the US economy had been, say, 20 percent
lower than they actually were. You might be tempted to say that this
would make hiring workers more attractive. But to a first
approximation, prices would also have been 20 percent lower – so the
real wage would not have been reduced. So how would lower wages lead to
higher demand for labor?
Well, the real money supply would have been larger – but the normal
channel through which this might increase demand, lower interest rates,
was blocked by the zero lower bound. Yes, there would have been a
slight Pigou effect: real private sector wealth would have been higher,
because cash under the mattress (or wherever) was worth more. But on
the other hand, real debt burdens would also have been higher, probably
exerting a contractionary effect. Overall, there’s no good reason to
think that lower wages would have helped raise employment.
That is Paul Krugman and also here. That is correct but note the argument requires lower wages for all workers, exactly as Krugman states. He does not go through a change in wages for only some workers and indeed that scenario is very different and not necessarily Keynesian. When unemployment is present, lower wages for some workers can stimulate renewed employment and — depending on elasticities — possibly greater purchasing power as well or at least not proportionally diminished purchasing power. (Each worker earns less but there are more workers employed.) There won't in general be much of a deflation. The hiring of some workers can also lead to an upward spiral in production, employment, and again purchasing power, as outlined by W.H. Hutt in his books on Keynes.
Krugman and others wish to argue that the New Deal years were ones of recovery; that is fine but it increases the chance that the Hutt scenario and not the Keynes scenario would apply at that time.
The simplest version of the Keynesian argument on money wages also relies on labor as the primary source of marginal cost (true in many but not all sectors) and lack of market power for retail prices, among other assumptions about market structure. Yet another scenario is that some nominal wages fall and entrepreneurs (with some market power) invest more in response and hold retail prices relatively steady.
I believe Keynes's "falling nominal wages-falling prices-constant real wages-constant unemployment" scenario does hold for some of the 1929-1932 period and indeed I have argued as such in print. But once we get into the Roosevelt era, we have government propping up some wages above market-clearing levels and thus higher than necessary unemployment. Note that the Roosevelt policies applied only to some workers and by no means to all or even most workers, which again suggests the Hutt analysis is more relevant than the Krugman/Keynes analysis.
Krugman asks why Keynes's point, presented in 1936, is not more widely recognized today. But the limitations of Keynes's argument — including its reliance upon particular assumptions about cost and market structure — were pointed out by Jacob Viner in…1937 (see pp.161-162 JSTOR).
Viner, I might add, was hardly a laissez-faire denialist. He favored an active government response to the depression, and he admits Keynes's results can hold but needn't hold. He is the one who stakes out the sophisticated middle ground, not Keynes. So we're still trying to catch up to 1937, not 1936.
Addendum: It turns out I am blogging chapter 19 of the General Theory; I am looking forward to our forthcoming book club too much!
New MR book club – Keynes’s *General Theory*
Greg Mankiw wrote:
If you were going to turn to only one economist to understand the
problems facing the economy, there is little doubt that the economist
would be John Maynard Keynes. Although Keynes died more than a
half-century ago, his diagnosis of recessions and depressions remains
the foundation of modern macroeconomics. His insights go a long way
toward explaining the challenges we now confront.
I will go through the book, chapter by chapter, with an eye toward a deeper understanding of what Keynes wrote and why it is, as Greg says, so important. I’m not yet sure what kind of pace I can maintain but order your copy here, now. The Kindle version is only $3.96. We’ll do chapters 1 and 2 by next Monday, eight days from now.
Law and Literature reading list, Spring 2009
The Five Books of Moses, edited and translated by Robert
Alter.
The Metamorphosis, In the Penal Colony, and Other Stories,
by Franz Kafka.
Smilla’s Sense of Snow, by Peter Hoeg.
The Art of Political Murder: Who Killed the Bishop? By Francisco
Goldman.
In the Belly of the Beast, by Jack Henry Abbott.
Borges and the Eternal Orangutans, by Fernando Verrissimo.
Glaspell’s Trifles, available on-line.
Great Short Works of Leo Tolstoy, by Leo Tolstoy.
Sherlock Holmes, The Complete Novels and Stories, Sir Arthur
Conan Doyle, volume 1.
Out: A Novel, by Natsuo Kirino.
I, Robot, by Isaac Asimov.
Moby Dick, by Hermann Melville, excerpts, chapters 89 and 90.
Year’s Best SF 9, edited by David G. Hartwell and Kathryn
Cramer.
Pale Fire, Vladimir Nabokov.
Blindness, by Jose Saramago.
We also will view a small number of movies — most of all Sia — and perhaps I will add a Henning Mankell novel as well.
Questions that are rarely asked
Richard Green writes to me:
If the likes of Hitchcock and others could turn works that were mediocre in literature into great films, I wonder what mediocre films could have been great literature.
The point is not to come up with a list (though some of you will) but rather to ponder what we can learn about literature as a medium. He continues:
…literature adapted from films is almost (and this is a hedge because my experience says invariably) hack work, rushed and held in the lowest regard...Is it because literature is the elder medium, and has a higher status which would prevent condescension to recognising a prior from another medium? Is it because creation is more personal to a individual writer than the inevitable collaboration of film, and so they are loath to allow others’ work in?
Movies need (at least) a plot and a script and that can be taken from a book, with results of varying quality of course. But I do not have an equal understanding of which factor of production is scarce to writing a good novel. Do professional writers benefit more from showing originality in creating a world and also creating a language? There is plenty of fan fiction based on Star Trek and the like but few professional writers take this same tack.
A simple default hypothesis is that movies are more powerful and more real than books. So a movie based on a book won’t necessarily be overwhelmed by its source but a book based on a movie will be. Of course there are many books adapted from oral tales so maybe it is the addition of the pictures that is so overwhelming. I know only a few books adapted from paintings, most notably Gert Hofmann’s excellent Der Blindensturz.
The Life and Times of Raul Prebisch 1901-1986
The author is Edgar J. Dosman and this is a clear winner for most neglected book of the year. It is a very good economic and intellectual history of Argentina, a first-rate history of economic thought on the idea of import substitution, and an excellent biography, all at the same time.
It cost me $40 and I haven't regretted it. Every page is full of content. It's not easily excerpted but on Thanksgiving here is one bit I enjoyed:
Raúl and Adelita were now impatient to get home; they had been away for a full three months, but there was no escaping the boredom of wartime travel in the Americas, with one uncomfortable and bumpy flight after next and numerous stopovers — Miami, Mexico, Panama, Lima, Santiago, and finally Mendoza, where they boarded a train for the last leg to Buenos Aires.
You can buy it here. And if you agree with Dani Rodrik more than you agree with me, you may like the book more yet.
The Superorganism
The subtitle is The Beauty, Elegance, and Strangeness of Insect Societies and that is the new book by Bert Hölldobler and Edmund O. Wilson.
This is another plausible candidate for best non-fiction book of the year. I liked this paragraph:
Here is another good bit:
Whenever two kinds or organisms live in close mutualistic symbiosis, as is the case in leaf-cutting ants and their fungus, we should expect communication between the two mutualists. The fungus may signal to its host ants its preference for particular vegetable substrates or the need for a change in diet to maintain nutritional diversity or even the presence of a harmful substrate.
Here is a New York Times review of the book. The photos are wonderful too. Here is a short paper on the work of Barlow and Proschan and the general topic of "reliability"; it has implications for the financial crisis as well.
Iowa City fact of the day
In 2006, for a population of 63,027, there were 63,713
public library patrons; borrowers as a percentage of population reached
101 percent.
Is Will Wilkinson now one of them? Here is more. In another life, I would write a whole blog just on public libraries. UNESCO, by the way, has just designated Iowa City as the world’s third City of Literature. Edinburgh and Melbourne are the other two.
Why are music reviews so positive?
The perspicacious Peter Suderman writes:
…the critical medium that suffers most [from overly positive reviews] is pop music criticism, which
skews toward generally positive reviews of most everything, no matter
how bland or terrible. Scan the sidebar of Metacritic’s music page.
Nearly all of the review averages are positive or very positive, and
almost none of them are straightforward pans. In fact, right now I
don’t see a single album with a review average that gets a score
categorized "generally negative reviews." Contrast this with the movies page,
which contains more than a dozen films with low averages. Even the
limited release indies – the "artsy" films – are often given low marks.
But why? When it comes to a movie, you might actually go see the movie if you read a good review. Therefore the newspaper must be careful not to mislead you too many times and that implies a certain amount of criticism. But even a well-reviewed CD you are unlikely to buy, if only because there are so many CDs out there and there are so many well-defined genre preferences. So the MSM source courts many good music reviews, to give readers a sense that they are learning about "interesting product"; in any case only the fans will buy the stuff.
One testable prediction of this hypothesis is the following: when musical taste was less fragmented, and a review was more likely to influence buying decisions, music reviews would have been more critical. Similarly, if the outlet is pure niche, and thus being read by potential buyers only, the reviews should be more critical as well.
In the comments on Suderman, William Brafford comes close to this view.
I might add that Washington Post restaurant reviews are far too positive. If WP readers were simply told "There are hardly any good restaurants in your crummy little city," this wouldn’t do much for WP circulation or advertising revenue.
The less that people buy books, the more positive book reviews should become.
The Price of Everything
Our colleague, Russ Roberts, will be speaking about his novel novel, The Price of Everything: A Parable of Possibility and Prosperity on Monday at noon at Cato in Washington, D.C. More info here – note that the event is free, which seems peculiar!
More book awards: high standards in Iran
Yes, it’s that time of year again: they named the winners of the Sacred Defense Book of the Year awards in Iran…
Yet in ten major categories, including "Fiction," no books were deemed worthy of the honor. The category "Children’s War Poetry" was left open as well. Here is further information. Here is a photo of the event, plus a list of the books that were honored. Numerous second prizes were given even though no first prizes were awarded.
Outliers
The book is getting snarky reviews but if it were by an unknown, rather than by the famous Malcolm Gladwell, many people would be saying how interesting it is. The main point, in economic language, is that human talent is heterogeneous and that the talent of a particular person must mesh with the capital structure of his or her time if major success is to result. The book is best read as a supplement to Ludwig Lachmann’s Capital and its Structure. The main enduring insight of both Lachmann and Gladwell is simply how much we live in a world of complementarity rather than substitutability.
Nowhere in the book does the name Dean Keith Simonton (check out the headings to these links) appear nor does the phrase "multiplicative model of human success." A lot of the content here has already been done with more rigor and empirical support and also in readable form I might add. Everyone should read Simonton, noting that his hypotheses fare better in the arts than in politics.
If you ask too much from Outliers it will fall apart. It is too easy to find contingency in the world and Gladwell doesn’t begin to look for a theory of which contingencies are interesting or not. For instance arguably Ludwig van Beethoven would not have been a great composer if:
1. An extra butterfly had died two million years ago.
2. The outcome of the Thirty Years’ War had been different.
3. The Germany of his time had not had fortepianos.
4. His parents had conceived their child one second earlier.
5. Haydn had not paved the way.
#3 and #5 seem more interesting than #1 and #4 but that’s because some contingencies just don’t help us understand the world very much. Gladwell never gives us enough theoretical structure to see why his contingencies are the relevant ones. Simply showing the contingencies in personal histories is not, taken alone, very enlightening.
Gladwell’s contingency stories skid out of control. At one point it seems the main claim is that the steady accumulation of advantages is what matters, but once you ask which advantages end up "counting," the claim collapses into tautology.
There is also a "PC" undercurrent in the book of "don’t write anyone off" but if everything is so contingent on so many factors, maybe writing people off isn’t such a big deal. It could go either way. It depends.
Gladwell deliberately steers us away from the contingency of genetic endowment (even for a given set of parents, which sperm got through?), but if you hold everything else fixed you can assign a very high marginal product to the genetic factor if you wish, usually up to 100 percent of a person’s outcome. That mental exercise is verboten but somehow it is OK to hold the genetic endowment constant and vary some other historical factor and regard that as a meaningful contingency. See the discussion of Beethoven above, especially #4 on the list.
Gladwell descends into the swamp of contingency but he is unwilling to really live in it and take it seriously or, alternatively, to find a way out.
In reality the complementarity concept is easier to work with and also more fruitful for thinking about policy implications or for that matter the implications for management or talent training. Success is fragile but foster competing cultures based on clusters of talent motivated by rivalry and emulation. Don’t filter out the eccentrics or the risk takers. That’s about where David Hume ended up but Gladwell never gets anywhere close.
It’s still a good book and a fun book. You can order it here.
Meta-list of the “best of” books of the year
Not all the "best of" book lists are out, but I can issue a preliminary report, with possible updates to follow. This year opinion about best books seems unusually diverse. Not so many books have been intellectually central to the market. I have seen the following titles pop up repeatedly on "best of" lists:
Roberto Bolaño, 2666. Duh. After four hundred pages of reading, I see it as less perfect than The Savage Detectives but it has greater world-historic reach and even some sprawl. A clear first choice in almost any year.
Julian Barnes, Nothing to be Frightened Of. I like some of Barnes’s work, most of all Flaubert’s Parrot, but I am embarrassed that such a shallow book would receive any favorable notice at all.
The Forever War, Dexter Filkins. The quality of the journalism is high but for me it was insufficiently conceptual so I put it down after fifty pages or so.
The Story of Edgar Sawtelle: A Novel, By David Wroblewski. I liked the 150 or so pages I read but just didn’t have the time or the love to finish it. It reminds me of Stephen King’s better work.
I’ve drawn from the lists you will find here, among others.
During the year I saw many favorable reviews for Alexsandar Hemon’s The Lazarus Project (I liked it) and Amitav Ghosh’s Sea of Poppies (I haven’t read it yet), though neither seems to be popping up on so many "best of" lists. Perhaps Robin Hanson would view such lists as signaling rather than a honest statement of preferences.
Book medley
Burton Folsom, New Deal or Raw Deal?: How FDR’s Legacy has Damaged America; this book has a good compendium of free market critiques of Roosevelt, although I would not look here for a balanced review of the evidence. Senselessness, by Horacio Castellanos Moya; this is now my favorite novel from either Honduras or El Salvador, depending how you classify the nationality of the author. Alex Beam, A Great Idea at the Time: The Rise, Fall, and Curious Afterlife of the Great Books. A fun inside history of the Chicago Great Books series. Lily Tuck, Woman of Rome: A Life of Elsa Morante; I liked this book very much, without even being a previous devotee of Morante. Gilles Kepel, Beyond Terror and Martyrdom: The Future of the Middle East. Both Kepel and Belknap Press are wonderful, but there’s not much here. Paul Krugman, The Return of Depression Economics, with a new section on the 2008 crisis. Joseph Schumpeter, Capitalism, Socialism, and Democracy, a new edition. I wanted to read this again but in fact it is unreadable, I am sorry to report. After about forty pages I believe that 2666 is as good as the reviews, here is the latest survey of them.
Spin-Free Economics
The subtitle is "A No-Nonsense, Nonpartisan Guide to Today’s Global Economic Debates" and it is by Nariman Behravesh.
I was shocked by how much I liked this book. I think of it as a kind of contemporary Capitalism and Freedom, although it comes across as less partisan and the coverage is much more global. I agreed with almost everything the author said and I thought the framing was effective and spot on just about all the time.
Many MR readers already know too much to be the appropriate audience here, but if you wish to give someone an economics book as a gift, or as an introduction to thinking about economic policy, here you go. I’m still astonished at how remarkably good this book is and yes I did read it all the way through. Greg Mankiw wrote a very nice blurb for it.
You can buy it here. Here is the book’s home page. I haven’t seen any serious reviews yet, nor has Google.